G20: A solid showing

I’m no expert at reading carefully-negotiated communiqués, but the 3000-word G20 statement today seems to me to be more substantive and harder-hitting than any I can remember: it might not be as long as last November’s effort, but it packs more of a punch. Paul Krugman I think is right:

Realistically, most big-time international meetings produce nothing; this did something significant.

The point is that the G20 did what they could — which of necessity will have more impact on smaller nations reliant on IMF bailouts than it will on huge economies like that of the US. But every trillion dollars helps — that’s still a serious amount of money, especially for poorer countries, which is one reason Jeff Sachs is so ecstatic. Would a massive and coordinated fiscal stimulus have been an even better outcome? Mark Thoma thinks so, but I think the Europeans had a pretty good point when they said (a) that they were overindebted already, and (b) that their fiscal outlays would be rising substantially anyway. That’s what happens in countries with social safety nets entering a recession.

Obama was also said to be opposed to a greater role for international regulatory bodies, and he appears to have won that round. The draft section that called for regulators “to supervise cross-border institutions and to complete the establishment of colleges of supervisors for all significant cross-border financial firms” is gone.

The US regulatory agencies all failed miserably when it came to preventing or mitigating the effects of this crisis — and there’s no doubt that this crisis is global in nature. Regulation is clearly part of the solution, and equally clearly has to be globally coordinated, to prevent forum-shopping. AIG Financial Products and Lehman Brothers Europe were both based in London and were both largely unsupervised.

So it’s disheartening that the Obama administration is already taking the standard we’re-better-on-our-own-thanks approach. US regulators do not always know best. Indeed, it’s far from clear that they ever know best. And if international banking is really to be reformed going forwards, the locus of those efforts is going to have to be Basel, rather than Washington. Unfortunately, if the US is pushing back against such efforts now, it’ll continue to do so for the foreseeable future.